Bankruptcy is when consumers stop paying their bills for any reason or have debts exceeding total assets. Almost 120,000 Canadians filed for bankruptcy in 2009, up 28 per cent from one year earlier.

The Office of the Superintendent of Bankruptcy (OSB) also reports that over three-quarters of consumer bankruptcies originated from Canada's three most heavily populated provinces: Ontario (39.3 per cent), Quebec (28.7 per cent) and British Columbia (9 per cent).

Instigators for Canadian financial stress. OSB statistics reveal a wide range of reasons behind Canuck bankruptcies. While overextension of credit is the leading single determinant, job loss and seasonal unemployment together result in the most bankruptcies at a combined 27.8 per cent. The primary instigators of bankruptcies include:

• 1. Overextension of credit (22 per cent of all Canadian bankruptcies).
• 2. Seasonal employment (15 per cent).
• 3. Job loss (12.8 per cent).
• 4. Medical problems (11.3 per cent).
• 5. Relationship breakdown (10.3 per cent).
• 6. Money mismanagement (9.2 per cent).
• 7. Failed business (9.1 per cent).
• 8. Failure to pay taxes (3.6 per cent).
• 9. Gambling addiction (2 per cent).
• 10. Inadequate pension (1.4 per cent).

Medical problems cause a significant percentage of bankruptcies, although it's unclear whether medical bills or the inability to earn sufficient income due to poor health is the true root cause.

Business failures represent an obvious reason for insolvency. Without sufficient income, owners simply can't pay their bills. And money mismanagement problems can drive high rollers into bankruptcy where wild spending exceeds earnings.

Not paying taxes, gambling addictions and tiny pensions cause relatively fewer bankruptcies, but still represent serious financial problems.

Bankrupt Canadian homeowners. One in five financially stressed homeowners chooses bankruptcy simply because their mortgage amounts are greater than the equity they own in their homes.

In 2009, the average value for Canadian bankruptcy homes was $118,834, while the corresponding average mortgage debt was $126,700. This results in an average $7,866 in negative equity -- or extra debt -- for bankrupt homeowners.

Liabilities by type of debt. Credit cards are just one part of total Canadian bankruptcy debt, which amounted to $98.2 million for 2009. The leading type of bankruptcy liability was $23.9 million in payday, car dealer and other miscellaneous loans. Other categories of bankruptcy debt were:

• 1. Mortgages ... $21.9 million (22.3 per cent).
• 2. Credit cards ... $16.8 million (17.1 per cent).
• 3. Bank loans (excluding mortgages) ... $14.3 million (14.6 per cent).
• 4. Taxes ... $8.2 million (8.4 per cent).
• 5. Finance company loans ... $6.6 million (6.7 per cent).
• 6. Loans from individuals ... $5 million (5.1 per cent).
• 7. Student loans ... 1.4 million (1.4 per cent).

Overall, 72 per cent of the overall bankruptcy debt was unsecured without collateral, such as automobiles, that creditors could seize to collect on unpaid debt.

Other debt solutions. Instead of declaring bankruptcy, Canadians can ask their bankruptcy trustees to register consumer proposals. These proposals offer to pay creditors a percentage of the owed amount over a specified time period, extend the payment period or do a combination of both.

The popularity of consumer proposals is increasing. For the twelve-month period ending September 2010, Canadian bankruptcies fell by 18.4 per cent to 100,000, while consumer proposals rose by 29.9 per cent to almost 42,000.

Depending on province of residence, first-time bankruptcies stay on consumer credit reports from six to seven years after discharge. Registered consumer proposals remain credit report items for just two years.

Before having to face bankruptcy, Canadians can seek out credit counselling services from local family or community associations. Consumers can also talk to creditors about:

• Smaller payments over a longer period of time.
• A consolidation loan at a lower interest rate.

Tip: The OSB has a toll-free number that offers free expert help on a wide range of bankruptcy questions.